Monday, January 31, 2011

Here’s an exercise for you, if you’ve always thought about writing songs, or if you write songs but haven’t written any in a couple of years. It’s February Album Writing Month, where the objective is to write 14 new songs, enough songs for an album with perhaps a few to spare, during the 28 days of February. That’s one song every two days — an easily achievable pace, even if you’re working in your spare time and have limited skills at songwriting.

In truth, if you’re familiar with the basics of music and listen to songs all the time, songwriting is not as difficult or mysterious as most of the books on the subject make it out to be. If you need songwriting tips, spend some time flipping through Paul Nordquist’s Unruly Beast of a Songblog. I think of Paul as the private detective of songwriting coaches, the one who can track down your missing inner songwriter. Take a look at The Rock Songwriter’s Deck and you’ll see what I mean.

Why would anyone take on the challenge of writing 14 songs in one month if writing one song seems difficult? That’s precisely the point: the action of writing song after song forces you out of the mindset of thinking that it’s too hard to do. When you start thinking of work as something you can do, you may find yourself doing more and better work. That change in perspective — not so much the actual 14 songs — is the point of February Album Writing Month.

Saturday, January 29, 2011

A bizarre food lawsuit came to light this week. A consumer in California is suing Taco Bell for mislabeling its beef tacos. Taco Bell is threatening to countersue over the claim. Taco Bell will not be able to countersue, however, as no one would have heard about the suit but for Taco Bell’s own aggressive publicity surrounding it, which includes a press release and full-page ads in multiple newspapers (well, and Stephen Colbert’s subsequent take on the controversy). It makes you wonder if Taco Bell could have somehow created the lawsuit against it as a kind of publicity stunt. Taco Bell has been known for bizarre advertising schemes in the past, including one ad in which it claimed, as a joke, to have acquired the naming rights for the Liberty Bell. Taco Bell is also known for having problems with its food ingredients. A decade ago, it vehemently denied a report that its taco shells contained traces of a variety of corn that wasn’t fit for human consumption, only to have other laboratories confirm that test result. With that history, Taco Bell’s knee-jerk denials of laboratory tests don’t have much credibility.

But the lawsuit in this case doesn’t have much credibility either. It complains that Taco Bell’s beef can’t correctly be called beef because the spice mix included in it contains ingredients that aren’t spices. This appears to be an attempt to apply an FDA food labeling regulation to an issue of restaurant food naming, while simultaneously failing to apply FDA food labeling rules about spices. If so, that’s just a series of mistakes from someone who doesn’t know the first thing about food law.

But there is a real question about what is in Taco Bell’s seasoned beef. Taco Bell assures us that the meat part is “100% beef” and the cooked product is “88% beef.” But the laboratory that tested for the plaintiff’s law firm found only about 1/3 beef.

It’s important to pause here and point out that 1/3 beef is not necessarily inferior to 88% beef. Beef is, after all, the food most associated with mad cow disease, an issue that the United States has been dodging, rather than addressing, for more than a decade. Mad cow disease is a horrifying disease that slowly turns a human brain into a sponge, until it no longer functions at all and the victim dies. It is believed that humans contract mad cow disease primarily by eating hamburgers (and other forms of beef) made from cows that had the disease. Of course, if beef is not thoroughly cooked, there are quite a few other diseases it might carry. Also, quite apart from any risk of disease, beef is junk food, with minimal nutritional value and a fair amount of stuff that tends to gunk up the inside of a person’s body. So if you have a choice between one meat loaf that is 88 percent beef and another that is 33 percent beef, you might well choose the one that is 33 percent beef. It depends, of course, on what else is in the meat loaf. Fake meat can be junk food too.

This isn’t that much of an issue in the Taco Bell controversy. Most of the tacos you can get there don’t contain any beef, so people who are really looking for food have better options anyway, even within the context of Taco Bell.

If the story resonates so well, it is because consumers know that the price of beef has gone up, and it is easy to imagine a restaurant looking for ways to cut down on its food costs by putting less and less beef in the beef recipe until there is hardly any beef left. And given the decentralized management of most restaurant chains, with a manager for every location, it is easy to imagine an unscrupulous local manager altering the recipe and an unscrupulous regional manager looking the other way.

You wonder about the good sense of Taco Bell brand executives in not pausing to look into this possibility before firing back in the most public way possible. The corn scandal permanently tarnished the Taco Bell name. It might take only one more highly public scandal to force them to retire the name. In other words, this might be it.

But there is a problem with the theory of Taco Bell’s beef being cheapened with some kind of cheaper meat. What cheaper meat? You cannot go into the supermarket and find any cheaper substitute for ground beef. There aren’t any cheaper meats unless you’re willing to look at things that you wouldn’t really call meat. Even the imitation beef that some vegetarians like to eat costs more than ground beef — about three times as much, actually. Ground beef is already a cheap substitute for meat. There is no cheap substitute for ground beef.

If you’ll permit me to speculate, I believe Taco Bell’s beef is being cheapened in the same way all commercial beef is cheapened. Beef cattle, I am told, put on more than half of their weight during the last three weeks of their lives, as they are fed huge amounts of corn and other grains in feed lots in preparation for slaughter. This extra weight that beef cattle put on doesn’t create “real” beef. According to food experts, the cattle don’t have time to fully assimilate all the corn they eat in their final days, so that it becomes a sort of “corn filler” that is a big part of all conventional beef. This is one of the reasons why current commercial beef has so little flavor. The corn in question even shows up in lab tests, and perhaps this is all that the lab tests are finding in this case. If they are comparing the proteins of commercial beef to reference values measured from the “real beef” of half a century ago, of course they’re going to find the chemical signature of corn alongside that of beef. “You are what you eat” applies to beef cattle too.

Or maybe I’m completely wrong about this, and the law firm’s laboratory properly compared the Taco Bell beef to other commercial beef. Regardless of how the facts play out, Taco Bell’s carpet-bombing approach to publicizing this issue has left millions of people wondering whether it is safe to eat Taco Bell’s beef tacos. If this is a question on your mind, the answer is the same as for any other kind of fast food. Fast food is not known as a particularly healthy form of food. You should try to do better.

Friday, January 28, 2011

How accurate do banks need to be in describing the mortgage-backed securities they sell? Unfortunately for the major banks and mortgage lenders, the rules for mortgage-backed securities are essentially the same as for stocks and bonds. The rules are not particularly forgiving of intentionally misleading statements, or even careless omissions. This is in sharp contrast to banking, where intentionally misleading statements about bank account services and fees are not only tolerated, but actually acceptable under the rules that govern the banking business. But bank executives who think they will get away with some of the defective securities they sold, because they met the rules of the banking business, may be in for a bit of a shock when courts judge their past transactions according to the rules of the securities business.

Lawsuits are particularly piling up against Bank of America subsidiary Countrywide Financial, with dozens of suits claiming that the mortgage lender committed securities fraud by not disclosing that most of its mortgages did not meet the underwriting guidelines described in the descriptions of the securities. Government units and government-owned businesses are among the plaintiffs in the suits, which at first glance appear to be substantial enough to eventually put Countrywide Financial into bankruptcy. The settlement of civil securities fraud charges against former Countrywide Financial executives last year, having to do with the company’s stock, may pave the way for these new suits against the company for essentially the same problems in its other securities.

Tonight’s largest bank failure was First Community Bank, by some measures the third largest bank in New Mexico, with $2 billion in deposits and 38 locations. U.S. Bank is taking over the deposits and purchasing the assets, and establishing a presence in a new state. Three of the failed bank’s locations were in Arizona, with the rest in New Mexico, where it was founded in 1922.

The FDIC estimates this closing will cost it $260 million.

State bank regulators closed each of the failed banks tonight. In Colorado, FirsTier Bank was closed, with $782 million in deposits and 8 locations mostly in central Colorado. FirsTier Bank had struggled for a decade, shrinking substantially from its peak, and looked hapless for more than a year, missing a deadline from regulators early in 2010 to raise capital.

The FDIC was unable to find a successor bank. It has created a bridge bank to allow checks to clear and customers to withdraw funds for the next two weeks. Customers should arrange to open accounts with other banks immediately starting Monday. The FDIC estimates costs for this closing of $243 million.

FirsTier Bank was one of at least 8 Colorado banks victimized by a Ponzi scheme centered in Lafayette, Colorado. A jury in Denver convicted a business owner a week ago of more than 30 counts involving fraudulent bank loans, which were obtained on a wide range of pretexts, but mostly used to repay previous loans. The scheme included buying houses with mortgage loans, then selling the houses and keeping the money.

Banks failed in familiar places tonight. In addition to the failures in New Mexico and Colorado, there were small bank failures in Oklahoma and Wisconsin:

Evergreen State Bank, with four locations in southern Wisconsin. The successor is McFarland State Bank.

The First State Bank, with one location in Camargo, Oklahoma. The successor is Bank 7.

If it seems that the bank failures are trending toward smaller banks, part of the reason is that some of the troubled banks have been shrinking, losing customers as their financial fortunes decline. Evergreen State Bank, for example, reported $269 million in deposits in 2008, but this had declined to $195 million at last report, with a corresponding decline in assets.

Thursday, January 27, 2011

That was the rationale of a business manager yesterday, trying to keep a business operation going in the face of inclement weather. The occasion, though, was not “a little bit of snow.” The forecast called for a major winter storm during which the major through roads would mostly be impassible for a ten-hour period. Anyone who had stayed to work late would have been stuck there for the night.

No one volunteered to stay, of course. Customers didn’t come calling either, for that matter, and that was what persuaded the manager to close early in the end. This inevitable outcome illustrates the value of viewing things in proportion.

There is a difference between a small snowstorm and a large one. With more snow, more work it required to move the snow aside. With more snow removal work to do, it can take longer to get the streets back in working order. Having a sense of proportion about the snow is just as important this morning as it was before the storm. Someone who expects to clear the sidewalk in the usual 15 minutes, even though the snow is knee-deep this time, is ignoring the scale of the problem. The snow cannot necessarily just be pushed to the side, for example. It might have to be carried to a snow pile.

Alas, while many things in economics appear to be instinctive, proportion has to be learned all over again for each new situation. People who know from experience that driving takes more time if the distance is longer are nevertheless surprised at how much more fuel their new larger car requires.

Numbers can help. I estimated the weight of the snow I personally will be moving today with my snow shovel: roughly 6 tons. That figure tells me I should plan on spreading the work out over at least half of the day.

Wednesday, January 26, 2011

What if everyone in the United States started to save for retirement the way financial planners said they should? The result would be a financial disaster of unprecedented proportions, for several reasons, but one in particular.

Consider: conventional financial planners suggest a nest egg of about $3 million, if you can manage it. In this plan, 100 million households would have an average of $2 million in the bank, or otherwise soundly invested. The national aggregate retirement savings would be a total of $200 trillion.

But there isn’t that much money. Everything the United States can produce for the next 10 years may not be worth $200 trillion. That means $200 trillion can exist only in a fictional sense. The money could exist in accounting records, but you wouldn’t really be able to spend it. This is a far more serious failing than the current political worries about the federal government owing $10 or $20 trillion.

We take the ability to save money for granted, but we shouldn’t. The ability of money to act as a store of value (that’s the economic term for it) isn’t actually a law of nature, nor is it strongly supported by history. A nation’s collective ability to save money is limited by its productive capacity. In other words, your money is worth something only if people are actually working and making things. There is a limit to how much money can be saved. Economists can’t say exactly what that limit is, but it is fair to say that it is impossible for there to be so much money put away that ordinary people can live the last one third of their lives in a lifestyle of leisure and luxury. No matter how cleverly we plan this financially, it won’t work. It may work for individuals, up to a point, but it won’t work as a plan for the whole country.

It is an open question whether it is possible for everyone to have even a subsistence-level retirement. We haven’t had to face that question — yet — for two main reasons. In the 20th century, western governments financed retirement plans based on a pyramid-style scheme supported by population growth. Further reducing the strain on the retirement systems, less than half of people reached retirement age. As many died in their 50s of tobacco-related illnesses. We cannot reasonably expect either of these two effects to continue.

People worry about the solvency of Social Security, and indeed, Social Security would be an illegal pyramid scheme or Ponzi scheme if it were sponsored by a private company. Yet people’s private retirement savings for the 2040s are in even worse jeopardy. Quite contrary to current experience, people could get to 2040 and find that their retirement savings are worth considerably less than the money they put in.

The whole concept of retirement will have to be reconsidered, and in addition, we have to stop relying so much on money and other financial instruments as a store of value. When financial planners currently talk about diversification, they mean not putting more than 20 percent of your portfolio in the stocks and bonds of any one sector. But if you are planning on retiring 30 years from now, real diversification probably means not having more than about 20 percent of your portfolio tied up in stocks or bonds or securities of any kind, or bank accounts, or anything that depends on the continued operation of the corporate world or the financial system.

What are we to invest in, then? It is a question we will have to figure out — because the way we are doing it now, there isn’t enough money for all of us to retire.

Tuesday, January 25, 2011

The important economic message from tonight’s State of the Union address is the renewed promise to wind down the wars in Asia. Not that domestic economic policy questions are unimportant, but the U.S. economy can’t seriously be expected to get back on its feet as long as it is bleeding 2 percent of GDP in wars halfway around the world. That’s money that’s leaving the country with little chance of returning. As soon as we can stop the bleeding, any domestic initiative to restore economic health will start to look a little more brilliant.

Monday, January 24, 2011

With more people than ever needing to lose weight and save money, people are having second thoughts about what they’re eating. They are asking the question, “What do I really need to eat?” It’s a question that you would think would be more common than it is.

When you become more selective in buying and eating food, eating for a reason instead of just replaying your food habits, it is a step toward conscious eating. This is something psychologists have started to focus on in recent years as one of the keys to weight loss. It is also a component of financial self-control. And it can eventually lead to a pattern of greater self-awareness in general.

To change your habits, you first have to get uncomfortable with the way things are. This discomfort tends to arrive at the most inopportune times, but the personal progress and insight that result — such as the many people who have finally turned the corner on their weight — are every bit as real as if they had been planned that way.

Sunday, January 23, 2011

I think I know what the government can do to boost consumer spending: have the weather service forecast a major storm every couple of weeks.

A major storm, around here, isn’t likely to keep people off the streets for more than a day. That doesn’t stop the people who are getting ready for the storm from buying an extra shopping cart full of supplies. I saw this yesterday and today even though the reported chance of a major snow event on Tuesday or Wednesday was less than 50 percent. It’s not really a question of probabilities — if something big is going on, people don’t want to be left behind.

As long as people have the perception that nothing is happening, they won’t have a reason to buy anything. But that’s a perception that the forecasters — the weather forecasters — have the power to change.

Saturday, January 22, 2011

Some engineers studying the problem of supplying electricity to electric cars are assuming that the right time to recharge a car is at night. That might make sense if you are looking only at making the most efficient use of the electric grid, and it works for commercial fleets that are used only during the day, but it is not the right answer in many other cases.

If an electric car is your personal car, this also means it is your primary means of emergency transportation. If a disaster forces you to evacuate, or if someone needs to go to the hospital, you will be glad to have your car running. That means the right time to charge the car, if it is mostly discharged, is the first chance you get. For commuters, this may mean recharging the car the minute you get home, and perhaps also when you park the car at work.

Another scenario involves charging cars from solar panels that are right there in the parking lot. Surely the price of solar panels will fall again by a factor of 2, and then this will become one of the more popular ways of charging a car, bypassing the grid entirely — but obviously, only during daylight.

Some of the engineers looking at the electric grid appear to have an exaggerated idea of the energy electric cars will consume. Realistically, the world won’t switch to electric cars until they become more efficient than they are now. But look at it this way: if we stopped making new fuel-burning cars today, it would take until 2036 to wear out and use up the fuel-burning cars we already have. The transition to electric transportation will be so slow electric planners won’t even see the changes from one year to the next, amid all the other changes that will be happening at the same time. Just to keep things in perspective, technological changes in refrigerators and air conditioners, as old equipment is retired and replaced, will make a bigger difference on the grid than electric cars will.

Friday, January 21, 2011

With most large banks having to stretch to report a profit, and with plenty of excess capacity remaining in the banking industry, you know the layoffs have to be on the way. Dozens of large banks have already announced layoffs this month, and I expect a parade of layoffs at banks through next year at least.

The first large bank failure of the year took place tonight, with the Office of Thrift Supervision closing United Western Bank, with $1.65 billion in deposits and 8 locations, based in Denver, Colorado.

North Carolina-based First-Citizens Bank & Trust Company is looking to expand its national presence by assuming the deposits and purchasing the assets.

United Western Bank had a portfolio of nearly worthless derivatives left over from its former life as a wholesale mortgage bank.

A Georgia bank failed tonight without a successor. Enterprise Banking Company, based in McDonough, Georgia, had $96 million in deposits. The FDIC created a bridge bank to allow customers to access their accounts during limited banking hours between Mondayand Wednesday. In general, the FDIC will mail checks to depositors.

Two small banks failed in the Carolinas:

CommunitySouth Bank and Trust, based in Easley, South Carolina. Local bank CertusBank is taking over the deposits and purchasing the assets.

The Bank of Asheville, of Asheville, North Carolina. Another North Carolina bank, First Bank, is taking over the deposits and purchasing the assets.

Thursday, January 20, 2011

Scientific American reported yesterday on a decline in empathy, comparing college students’ answers on an empathy questionnaire over the past 30 years. There are unavoidable problems with this kind of research — the wording of the questions has not changed in 30 years, so the changing cultural context will inevitably make some of the hypothetical situations less relevant, even quaint. (An example: “I try to look at everybody’s side of a disagreement before I make a decision.” In the 1970s, most people would have agreed with that strategy. By the 1980s, people had learned how to abuse that pattern by creating bogus stories designed to take advantage of people’s attention, so a strict “listening” strategy was no longer practical.) But assuming for the sake of argument that there has been a decline in empathy, there is a lively discussion about the possible cause.

The most likely explanation, if there has been a decline in empathy, is the increase in time pressure. If people are pressed with more commitments of their own, they are less able to stop to ponder the plight of others. If time pressure is the problem, then adding mandatory courses in empathy (or requiring people to spend endless hours reading fiction) is not the solution.

Of course, time pressure is related to population density. Sociologists have long noted that population pressure leads to more highly competitive behavior and thinking, which could encompass both increased time pressure and, at least, a lower level of sympathy for the losers.

Wednesday, January 19, 2011

The old view of cigarette smoking was that it damaged the body little by little over a long period of time. Taking a closer look, we have found that cigarette damage acts faster than that. A few minutes in a smoky room can trigger a heart attack, and this effect was probably present in more than half of heart attacks until recently. And now we find that smoking one cigarette creates an instant cancer risk. At BBC News: “Smoking ‘causes damage in minutes’, US experts claim.”

The new study focused on just one of the thousands of cigarette hazards, a polycyclic aromatic hydrocarbon (PAH). In every person studied, within 30 minutes the PAH from the cigarette broke down into other chemicals, including one known to damage DNA and cause cancer.

Tuesday, January 18, 2011

Historically, there is a definite link between family and country. A large family might become a tribe; a large tribe that stayed in one place would form a nation. It makes sense, then, that the same human tendencies and drives could be behind the protective impulses of family members and the national prejudice that makes it easier to blame foreigners for problems.

I first made this connection when I saw the fiercely protective behavior of fathers of newborn babies. There are stories of men flattening intruders without a second thought, who on any other occasion would have merely called the police. The impulsiveness of this kind of response, it seemed to me, is the same as that of people who are ready to go to war.

And to an extent, it is. The biological link is oxytocin, mistakenly described as a feel-good hormone. Oxytocin is indeed associated with feelings of affection and belonging, but it is also associated with blame, territorial aggression, and risk-taking. If a mother bear is ready to kill you, putting her own life at risk, because you’ve walked within ten meters of the cubs, that is oxytocin at work. And now, scientists in a study described in the Scientific American story “A Love-Hate Relationship?: ‘Feel-Good’ Oxytocin May Have a Dark Side” have established a link between oxytocin and national prejudice. In word selection exercises, people who were given oxytocin were quicker to draw distinctions along national lines.

In shamanic terms, the risk involved in identifying yourself primarily as a member of your family, or of any group, is the narrowing of perspective that results. You can stop seeing most of what is there in the world around you, and this includes overlooking most of the people who can help you. It also may lead you to unfairly blame problems you experience on people outside your family, or outside your country, instead of taking responsibility for your own situation and looking for what you can do to improve things.

A great deal of trouble can be avoided by changing your view of your social context to fit the circumstances. Don’t get stuck in any specific us-versus-them line-drawing point of view.

If your reaction to the news of this month’s floods on three continents is, in essence, “I’m so glad no one from my family is there,” that’s what I mean by being stuck in a particular point of view. A family-oriented view is not an effective way to put this kind of news in perspective. It robs you of your compassion for the people who are having to scramble for higher ground. When disaster strikes, whether where you are or somewhere else, the constructive line of thinking comes from wishing for everyone to reach safety, rather than drawing lines between one kind of person and another.

There are times when you have to see yourself as part of the company you work for, the city or country where you live, or perhaps the profession you work in. At other times, especially if you are wishing for health or personal success, it is necessary to see yourself as an individual. And sometimes, you make yourself more powerful by seeing yourself as a citizen of the world. If you can switch back and forth among various points of view over the course of the day, you won’t get stuck in any one point of view. And then, your chances of getting caught up in simmering hostilities or violence are much less.

Monday, January 17, 2011

From the stories I’m hearing, more U.S. employers are giving workers the day off for today’s holiday in honor of Martin Luther King, Jr., along with one or two other federal holidays that businesses have considered optional. At some companies, a few extra days off is the best they can do to make up for a lack of raises and promotions.

Sunday, January 16, 2011

In the capitalist view of economics, the reason for business profits is to reward risk-taking. Workers don’t participate in the risks of the business, so they aren’t included in the idea of profit.

But wait a minute. This model is based on several assumptions that don’t fit as well as they used to, including the assumption that, if the business cuts back or fails, the workers can go work somewhere else. In the current job market in the United States and Europe, where there is long-term high unemployment and low hiring, a fired worker can’t just pick up the pieces and go work at another employer the next week. A few do, to be sure, but many of the workers who lose their jobs this year will remain jobless for years.

It is still imagined that this doesn’t represent a risk for workers because, it is imagined, workers don’t have an investment at stake in their work. But workers do have an investment in their work, larger in many cases than the investment their employers have made.

Consider, specifically, the workers who have spent four years and $250,000 on a college education. About half of U.S. jobs require a bachelor’s degree, so getting a bachelor’s degree is a sensible investment, but it can be a frighteningly large investment. How much does the employer have invested? To make the comparison, you have to divide the business’s capital at risk by the number of employees. Often, this will be less than $100,000 per employee. This means that when employers and employees meet in the job market, it is not unusual at all for the employee to be carrying far more risk than the employer.

You can measure this effect just in terms of time. How many businesses spend four years recording losses before they start to make a profit? Some do, and some don’t — but virtually every college student records four years of losses before there is any chance of making a profit on the college education.

I have been using a 4-year college education as an example, but the question of investment and risk is not just about education. This year, many workers will spend 1,000 hours just searching, applying, and interviewing for a job. Some will get a job at the end of this process, while others will get to try again next year. This too is a considerable investment of time for workers, and it is not merely unpaid, but comes at a financial cost that is not only noticeable but painful for someone with a minimal source of income, or none at all.

This would not be a great concern if the current high unemployment levels were expected to return to more comfortable levels within a year or two, but that is not likely. No one (within the scope of currently acceptable political policy thinking) even has a plan that would return unemployment to a more manageable level of 4 percent — and even if that were on the way, 4 percent unemployment still represents a substantial degree of risk and pain for workers. Instead, most forecasters expect U.S. unemployment to remain above 6 percent for the next 7 years or longer — and some European countries may do worse in this regard.

The total investment that workers typically make in their careers is already more than 30 percent of the time they actually spend working, and this ratio is creeping higher. Workers, not business owners, are actually the big risk-takers in the current economy. The risk and reward are in the wrong places. It simply should not be so risky to be a worker — nor should business owners be so highly rewarded for taking risks that are smaller than the risks their employees are taking.

In traditional economic theory, this should lead to a series of adjustments. More people should become business owners. Fewer people should interested in becoming employees, at least in the areas that require a large upfront investment. This year, this will mean negligible growth in payrolls and more freelancers. Within ten years, employers will have to change the employment contract to make it more attractive for skilled workers.

Changes are also needed in the way we finance workers. There is no excuse for a system in which a new degree-holder is also holding half a million dollars in debt. Education doesn’t have to cost so much. Indeed, it is so beneficial for society that one could argue that parts of it, such as textbooks, ought to be free. Similarly, there ought to be ways to take away some of the cost and effort of job-searching, so that those costs do not fall mostly on unemployed and underemployed workers. These kinds of adjustments are called for out of a sense of fairness, and are needed to minimize the financial distress and the number of worker and business bankruptcies that will be occurring as the job market makes the adjustments that are on the way.

The title is sure to raise some eyebrows — particularly the last part of it, about “our children’s future.” Any attempt to peer 30 years into our economic future is sure to be hampered by the cloudy glass in the crystal ball. Consider the advice, common in 1980, that everyone who wanted to get ahead should go into management, because “automation” would eventually replace all the “rank and file” jobs. In fact, it was the management jobs that all but disappeared over the next eight years. But this, in itself, raises an interesting point. Students have to predict the economy at least five years in advance to make good decisions about what to study. This kind of predicting is hard to do, especially right now. It perhaps represents an undue burden on students, when you stop to consider that those who guess wrong may be left with a lifetime of student loan debt that can never be paid back.

Richards’ post argues that there is a connection among a series of long-term trends having to do with information technology, productivity, employment, and income distribution. This part is purely speculative, as you can’t use long-term trend data to determine how one trend might cause another. However, there is an important point to notice in the employment data Richards shows: employment rates are consistently higher among more educated workers, and the employment gap tends to increase every time there is a recession. Part of what is going here, I believe, is that the job market gets more competitive in a recession, and workers who have advantages have a better chance of getting in the game.

Long-term high unemployment creates a gloomy picture of working life: not everyone can have a job, so you have to outrun all the other job seekers and hope that you are one of the lucky ones, with a job, at the end of the day. But there is an element of randomness, or luck, in the way the job market clears, so that no matter how many advantages you start with or how hard you work, there is no guarantee that you will ever have a job.

This, of course, upends the traditional view of the job market. In the traditional view, you work, and you get paid. In a more complete view of the current job market, you work for years and years just in the hope of one day having a job, so that you can start to get paid for your work. This is the side of the job market where workers’ investment and risk have to be considered, and I will take another look at this tomorrow.

Friday, January 14, 2011

How many banking customers would be willing to give up local branch access, if necessary, in order to avoid monthly account maintenance fees on checking accounts? That’s a question that could reshape the banking industry this year. While nearly all of the large banks are moving to monthly fees between $6 and $15 for checking accounts, hundreds of banks are committed to keeping a practical form of free checking. If one fourth of customers move their accounts to the free-checking banks, the declining customer base will force banks to close thousands of branch offices.

One small bank failed tonight: Oglethorpe Bank, its two offices in Brunswick and St. Simons Island, Georgia. The successor, Bank of the Ozarks, says it will keep both branch offices open, increasing its recently established presence in Georgia to 12 locations.

Thursday, January 13, 2011

I’ve been practicing Twitter silence this week. I realize this is a trend, with celebrities refraining from posting until their supporters contribute a certain amount to charity. My Twitter silence, though, isn’t anything to do with that (though if anyone feels moved to pull out their credit card to support the cause, I urge them to buy a copy of my book Fear of Nothing and read it). No, I’m off of Twitter because of technical difficulties. It has been said that if you have a Twitter account as badly mangled as mine has become, the best thing to do is delete all the tweets you can find in your account (which in my case, at the end, was only four), then wait a few days for the database to pull itself back together, and repeat several times if necessary. It seems like it could work.

Silence as a spiritual practice has a long and honorable history. Saints and mystics have been known to go for years in a row without saying anything. If you go for a weekend without speaking at all, or only when someone has a specific request or need, it can make you aware of your automatic habits of commenting, intruding, and seeking attention. I am discovering some of these points in my brief experiment with Twitter silence, even though I am not being silent in any other way, and even though that is not the purpose of my Twitter silence.

So much happens in my own life and in the world around me that I automatically think to comment on, and these thoughts echo louder when I can’t immediately write them down in my Twitter feed. It gives me the opportunity to pause and observe, and perhaps question, these thoughts. Which of my comments are actually valuable to the people who read them? Which are actually unique? When I search Twitter instead of writing a comment of my own, I find more often than not that someone else has already said the same thing I am thinking of saying — but on occasion, there are things I observe that everyone else has missed.

As a result of this experience, when I return to writing on Twitter, there may be a little less chatter and a little more depth in the things I write. At any rate, I will try to tweet better.

Wednesday, January 12, 2011

Portugal got through its latest bond auction, selling about $2 billion in long-term bonds, but fund managers and speculators today are almost gleeful in explaining how they will be able to put the screws to Portugal next time.

A European bailout, of course, will not help Portugal any more than it “helped” Greece and Ireland. The only way out for Portugal is to make sure that there isn’t a next time — that at their next bond auction, they surprise financial markets with how little they want to borrow.

The lesson from Portugal’s predicament, not just for the United States but also for individuals, is that it isn’t safe to be in debt for years at a time, without the resources to pay it all off on relatively short notice. If you put yourself in that situation, sooner or later, the financial powers will get you.

Tuesday, January 11, 2011

Tom DeLay will be going to jail. He was sentenced to three years for a series of money laundering actions in 2002, when he was House Majority Leader. He will also have ten years of probation.

At his sentencing hearing DeLay made it perfectly clear that he doesn’t understand what he did wrong. He all but told the judge that if he got another chance, he would do the same thing again.

But money laundering is not just moving money from one place to another, as DeLay seems to think it is. Its purpose is to make money that’s from an improper source appear to be from a different source so that it will appear to be proper. It is what criminals do when they are trying to obscure their sources of income.

At his sentencing hearing, DeLay essentially argued that because the money was part of a political campaign, the usual legal standards shouldn’t apply. But I believe that when possible, politicians must be held to a higher standard, not exempted from all standards of conduct. Politics is a tortuous process anyway, but all the more so when some of the people running it are criminals. And that was the state of politics in the United States in 2002.

Monday, January 10, 2011

How much fluoride in drinking water does it take to produce strong bones and teeth?

No one really knows, but there is no question that the current U.S. recommendation, around 1,000 parts per billion, or 1 part per million, is too much. That proportion was really just a guess by scientists and the fluoride lobby when it was first put forward 50 years ago, and now that there has been time to study the question, there is a consensus among scientists that the proper level is lower than this — if indeed fluoridated water is effective at all for people who use fluoride toothpaste every day.

And that’s part of the problem. People get fluoride in many other ways besides drinking water. Toothpaste, mouthwash, and other dental care products contain fluoride. Most food contains fluoride. Most of the beverages you drink contain roughly the same levels of fluoride as the tap water they are made from. When fruits and vegetables are irrigated with fluoridated water, they too contain fluoride. Meat, milk, and eggs contain fluoride if they come from animals that drink fluoridated water. Even baked goods contain fluoride — when bread is baked, most of the water evaporates, but the fluoride stays behind. Scientists have tried to measure and estimate the amount of fluoride people get, but there are only guesses so far. It is safe to say, however, that most people get most of their fluoride from sources other than the water they drink.

But it’s not just a question of effectiveness, but also of safety. Safety should be the first consideration for a substance like fluoride that is a potent neurotoxin and a regulated industrial waste, too dangerous to be disposed of in an ordinary landfill. Excess lifetime fluoride intake leads eventually to broken bones, most notably, hip fractures in women over 70 years of age. As mentioned, fluoride is a neurotoxin that, in cases of acute exposure, interferes with brain activity, putting a person into a kind of stupor.

Fluoride is thought to be effective only for older children between the ages of about 7 and 14. It is not imagined to be helpful for adults whose teeth and bones are already fully formed, and it is considered more dangerous than useful in children under about the age of 6. This is enough of a concern that recently, authorities have been recommending that baby food and infant formula be prepared with water that does not contain fluoride if possible.

Despite the scientific consensus, U.S. authorities held stubbornly to the recommendation of around 1,000 parts per billion — until today. The new recommendation, after the review process that will follow, will be 700 parts per billion, a reduction of about a third. This change is likely to be widely adopted, with no one so far, not even the fluoride lobby, stepping forward to oppose it. A water supplier could add a larger amount only on their own authority, and at considerable expense.

I believe this is a step in the right direction. My hope is that the reduction of fluoride levels by about one third will reduce the fluoride-related illnesses by about one half. But more importantly, a movement away from the “1 ppm” level that fluoride advocates adhered to for generations, like a religion, will allow a proper public policy discussion of what the ideal fluoridation level should be. We know that 1,000 parts per billion is too much. The new recommendation of 700 parts per billion is probably still too much, scientists say, but if it is, we will be able to say so conclusively after a few years of experience with it. Then it may be time to take another step down.

Sunday, January 9, 2011

Seasonal hiring at U.S. retail was back to normal in the Christmas shopping season, with stores hiring about as many seasonal (temporary) workers as they did pre-recession. This does not mean, however, that retail is back to where it was — far from it. Retailers are keeping fewer permanent workers, knowing that they can hire additional workers virtually at will. This is a pattern that will continue as long as so many skilled workers are unemployed. Retailers won’t have a reason to build their permanent staffing levels back up until after they come to a Christmas season in which they can’t quite hire the people they need. The way things are going, that may not happen until 2018.

Saturday, January 8, 2011

Arctic sea ice was slow to form this fall, and now December 2010 has officially had the least ice cover ever recorded in the month of December. The Arctic Ocean itself is substantially ice-covered, though not necessarily with solid ice everywhere. A little farther south, though, the eastern Hudson Bay, which previously would freeze over in December, still shows open waters a week into January. More significantly, the cold weather pattern that will allow ice to stick to the coast of Labrador has not yet arrived.

Ice will continue to form, but less of it than we would have expected to see prior to 2007. There is no indication of setting a record for January. This month is likely to be about the third lowest ice extent for January — but it depends on the weather.

Friday, January 7, 2011

Appeals courts are upholding court rulings on foreclosure paperwork. Banks that don’t get their paperwork together before they appear in court for a foreclosure case can have their cases dismissed. In other words, banks that have been trying to cut corners with their paperwork are finding that the courts aren’t going along with their plans. Some bank executives and analysts have suggested that banks can get foreclosures done for legal and administrative fees averaging around $5,000. That estimate is proving to be impossibly optimistic on the banks’ part.

Some analysts have suggested that the average size of failed banks will be shrinking. The thought is that larger banks will have an easier time lining up new capital. It could also be said, though, that it is easier for the smallest banks to get bought out. So far, there hasn’t been an obvious trend in the size or character of failed banks.

The Fed has suggested rules that would limit debit card transaction fees to an amount proportionate to the transaction costs. This would reduce banks’ revenue in this area by about a factor of five and take away yet another cash cow for the industry. It would also eliminate all incentive plans for debit cards. Banks looking for new ways to charge fees are demonstrating that the “gotcha” mentality in consumer banking isn’t dead. For example, some banks are proposing inactivity fees around $9 a month for debit cards. At least one bank has created a monthly fee for checking account customers who don’t sign into their account on the Internet at least once during the month. The idea of these contingent fees is to make them so hard to understand and manage that the ordinary banking customer will not be able to avoid them completely. The risk with new fees is that, if they scare a significant fraction of customers away, some banks could end up insolvent.

The FDIC has begun filing civil lawsuits against officers, directors, and attorneys of failed banks where it believes fraud or negligence took place. A few hundred lawsuits have been filed so far, but observers believe the FDIC will file far more legal actions than this at failed banks where obviously false financial statements were published or specific assets were misrepresented.

Bank failures resumed tonight after the holiday recess with banks closed by state regulators in Florida and Arizona.

In Florida, First Commercial Bank of Florida failed. It had nine locations in central Florida and $530 million in deposits. It was founded in 1999 and prided itself on its independence in an area where few banks are locally owned. Its customers will now be served by a South Florida bank, Boca Raton-based First Southern Bank, which is taking over the deposits and purchasing the assets.

First Commercial Bank of Florida made miscalculations in its real estate lending that were exacerbated by the local decline in real estate values, which have fallen by as much as half from their peak in 2006. By late last year, the bank’s capital had fallen by three fourths, and if a year-end balance sheet had been prepared, it would probably show assets that were less than the bank’s deposits.

First Southern Bank has troubles of its own with bad loans, but it has plenty of capital remaining, and regulators evidently decided it was enough to cover its own loan losses and also take over a (slightly) smaller bank.

Scottsdale, Arizona-based Legacy Bank was the second bank failure of 2011. It should not be confused with the dozens of other banks elsewhere that have similar names. The failed bank had two locations, both in Scottsdale, and $126 million in deposits, many of which were Internet deposits from customers who lived in other states or outside the country. Missouri-based Enterprise Bank & Trust is taking over the deposits, paying a 1 percent premium, and is also purchasing the assets.

Thursday, January 6, 2011

Retail reports from December have been trickling in, and they mostly confirm what we saw at street level. In particular, the day after Christmas was snowed out in the Northeast, even in areas where the snowstorm was still pending during retail hours. And there is no sign that these shoppers made a return trip to the stores on a later day to pick up the sales they had missed. Most shoppers didn’t do any after-Christmas shopping at all, suggesting that people didn’t feel they had time for it, regardless of the weather.

A recurring theme in the reports so far is that retailers don’t have much pricing power. Stores that attempted slight price increases saw sales plummet.

A price war broke out in the teen-apparel category. Consumer electronics was also hit by lower prices, though this merely reflected retailer desperation. I wonder if consumers have come to expect a pace of deflation in consumer electronics that manufacturers aren’t able to deliver when the economy is slower.

On the surface, this is just another story about a failed state, so eager to make spying arrests for propaganda purposes that it is willing to pass off an ordinary dental filling as an electronic device — some sort of microphone, officials there are suggesting.

From my own experience as a guitarist, I can tell you that microphones that small exist. I can also tell you that microphones are useless without at least a wireless transmitter, including a power supply on the order of two AA batteries — not so easy to hide in a belt pack onstage, though we do our best. And that’s just for a wireless signal that you hope will make it to the side of the stage; you’d need more power to transmit over a longer distance. A microphone could also be connected to a recorder, but those are even larger. So the suggestion that all this was shrunk down to a few cubic millimeters and hidden in a tooth is not to be taken seriously. It is the crazy claim of a desperate government.

But there is more to the story than this. When dental fillings are made of metal, and particularly when they are constructed of several metal elements together, they are electrically active. They create electric currents from the fluids that are naturally present in the mouth. If the border patrol were scanning for electronic devices, a dental filling would come up with the same electromagnetic signature as a battery or microphone. Usually, this would be a very small electromagnetic pattern, but if a filling is large and is patched together from dissimilar metals, it could be more prominent. Then, if the border patrol is sufficiently paranoid, they could scan a dental filling and imagine a microphone.

If you took a high school physics class, you probably saw a physics teacher throw together some water, mineral salts, and metals and create a battery. If you put metal and water together, you almost can’t help creating an electric current. It is safe to say that all metal dental fillings create electric currents, and this is something you can detect using an ordinary electric multimeter.

We really don’t know what the consequences of having random electric currents in the mouth are, but there are at least two reasons why some scientists are concerned. First, electricity slowly dissolves any metal that might be present. In the mouth, of course, most of the metal is mercury. Second, the mouth is very close to the brain, which is known to be affected by electrical activity. Scientists have been trying to quantify these effects, but the results so far are really just guesses, and there could be other effects we haven’t thought of yet.

Probably, I hope, the electric currents that most of us have running around our teeth are just one of those curiosities of physics. But for one woman who was stopped at the border of Iran, the electricity was enough of an excuse to get her arrested and charged with spying.

Tuesday, January 4, 2011

As 2011 begins, I am hearing two different predictions for changes in the book business. Book marketing experts say that independent bookstores will mostly disappear, and that this could happen as soon as this year. At the same time, financial analysts are saying that most of the major bookstore chains are in dire financial condition and will be forced to cut back in the first half of this year, closing hundreds of stores and cutting back in other ways.

Within the book business, these sound like conflicting predictions. The story of the book business over the last decade has often been described in terms of a battle between independent bookstores and the major bookstore chains. Could both sides in this battle be losing at the same time?

Perhaps so. Consider that the entire book business is under stress. Publishers, wholesalers, bookstores, trade journals, printers, authors, and the book-buying public are all under pressure. On the edges of the industry, paper manufacturers, trucking companies, and package delivery companies are facing rising energy costs. It is not as if anyone involved has the free cash flow to step in and rescue the bookstores.

There are reasons to believe both of the predictions, as dire and abrupt as they might sound compared to what people were saying six months ago. Book marketers hear about the condition of independent bookstores directly from the sales representatives who visit these stores two or three times a year. The financial analysts who look at the bookstore chains are the same ones, in many cases, who observed the decline and disappearance of the record store chains seven years ago.

There are reasons to imagine that the bookstores will not repeat the story of the record stores. For one thing, investors hate to repeat their mistakes. There were plenty of investors who stepped in to try to rescue the record stores. The record stores closed anyway, and the late investors lost a fortune. The bookstores follow almost the identical business model of the record stores, many even including record departments; investors will be appropriately cautious.

In my opinion, the number of bookstores will have to decline, as it has been doing already, just because of the increasing time pressure on consumers. You cannot expect consumers to read as many books in 2011 as they did in 2010, unless they can learn to read faster. Bookstores will have to adapt to this. But will they adapt merely by closing?

I am not so sure of this. That’s because the bigger story in the book industry right now is rising energy prices. The business model of the major book publishers is to print books in large quantities and ship them off to the stores, where roughly half of them sell. The other half are shipped back to the warehouse after a few months or a year, and from there, most find their way back to the paper factory to be made into new paper. Energy prices are already double what they were ten years ago and are likely to double again in the next five years. Eventually, any business model based on shipping stuff back and forth all over the place has to collapse.

But if large numbers of bookstores have to close, I don’t see why it should happen this year. The landlord can’t rent the store out to another retailer, at least not very quickly, and the bookstore workers can’t easily move on to other jobs. And the books that are in the stores — the publishers don’t gain anything by taking them out of the stores and sending them off to the paper mills. Five years from now, when the excess retail space starts to work itself out, then we may see half of the bookstores closing, one by one.

In the meantime, the financial arrangements of the bookstore business will have to change, and quickly. This week, one of Borders’ suppliers says it is withholding deliveries while waiting for financial clarification from Borders. That’s a situation that will have to be resolved in a matter of weeks, rather than years. What I expect to see is that the bookstore chains especially will have to stop borrowing so much money to put books in the stores, and this means they won’t be showing so many new releases from major publishers on the shelves. In other words, the major bookstore chains will start to look this year the way the independent bookstores started to look last year.

And this may not matter as much as it might seem. No bookstore carries even a third of the important new book releases. The book-buying public knows, by now, that they cannot go to a bookstore and expect to find a book that people are talking about. But people go to bookstores anyway. And I believe the bookstores will be able to maintain the bookstore experience that their customers expect, even as their access to the latest book releases is declining.

So, by the end of 2011, it may not be the bookstores so much as the major book publishers that are in a panic. Aside from their bookstore presence, the major publishers have no particular advantage over the independent publishers. Already, independent publishers sell more than half of the books out there, and the major publishers’ share of the total could decline as fast as their shelf space in the bookstores declines.

When the record stores shut down, the major record labels all but disappeared from the public eye. That may be an indication of what is likely to happen in the book business in 2011, whether the bookstores shut down or just change their business model.

Monday, January 3, 2011

The iPhone had a Year 2000-like moment over the weekend, as some iPhone alarms didn’t go off.

From published reports, the problem related to alarms set in 2010 to go off on a single occasion in 2011, but it is more obscure than this. The iPhone’s alarm clock failed to sound only if the phone was relatively idle in the interim.

Based on the description, it is a file system era-related problem, similar to the famous Year 2000 problem. In the Year 2000 problem, a whole generation of software written to use 2-digit years failed, either when they ran out of two-digit year numbers or when the numbers didn’t go in sequence as expected. An “era,” in computer software, is any period of time that has a sequential calendar. Changing an era in a computer program is like changing the calendar on your wall.

I am hard pressed to guess what the era-related problem on the iPhone might have been, or indeed, to explain why January 1, 2011, should be a new era in any software. That is nevertheless what happened, and the era-switching code included in the iOS file system wasn’t as automatic as we would want it to be. It was activated, apparently, only when certain user actions took place, such as launching or closing an application or saving a file.

If this glitch went undetected in early testing, it is partly because software testing in recent years has put most of its emphasis on the complex sequences of events that trigger most of the bugs that remain in our software. The objective is to find what sequence of button-pressing will make something go wrong. The iOS era-switching glitch, though, popped up only when people were not pressing buttons. Based on the little that Apple has said about the problem, it is occurring today mainly in iPhones that were idle (on, but not being used) all weekend. If you’re a software tester, and your plan is to let the computer do nothing at all for three days to see if that creates an error, your boss is probably going to tell you to get back to work.

The fact that iPhone alarms that didn’t go off created such a stir tells you how quickly people are abandoning single-purpose devices such as alarm clocks to rely instead on general-purpose devices such as mobile telephones. This doesn’t fit the traditional idea of marketing consumer electronics, since the dedicated alarm clock (or calculator, compass, etc.) costs a small fraction of the price of an iPhone. But people are trying to simplify their lives by using fewer gadgets.

Sunday, January 2, 2011

You set a new year’s resolution, but you haven’t done anything on it yet? I was just guessing, mind you, but it’s a very likely guess, because that’s the way most resolutions seem to go. The bad news about this is that your chances of taking action just go down as time goes on. But if you set a goal and didn’t take action right away, that points to a larger problem that you may want to take on instead. Read about this in today’s post in the Fear of Nothing blog.

Saturday, January 1, 2011

New Year’s Day might make you write a list — a list that maps out your route to the better life you want to have in the new year. Yet lists work only if they lead you to take action, and most people’s history with lists is that writing the list is a lot easier than taking the action. If you look at your new year’s list and worry that it could meet this same fate, I can tell you how to improve your chances of success. Read about this in the New Year’s Day post in the Fear of Nothing blog.